Ford Motor Company Financial Ratios
Ford Motors
Introduction
History Ford Motor Company did not start out with its current name nor did it start with its current reputation or leadership standing in the automotive industry. A man named Henry Ford on November 3, 1901 started the Ford Motor Company. In the beginning, the car company went through multiple name changes within a short time period and eventually landed on the all time name of Ford Motor Company. With the help of 11 investors bringing together only $28,000, Ford Motor Company launched in 1903. In the early years, the company was able to produce just a few cars a day in its Detroit Michigan factory. Teams of a few men assembled each car with parts that were contracted from other companies. Within 10 years of start …show more content…
up, Ford Motor Company would be the world leader in the development and refinement of the assembly line as well as bringing parts production away from contracts and into its own factories. Although Henry Ford was 40 years old when he founded the Ford Motor Company, his hard work paid off and would go on to become one of the world’s largest and most profitable companies that would also weather its way through the great depression.
Overview Ford Motor Company is known as one of the largest family-controlled companies in the world, and has been in continuous family control for over 100 years. Throughout the 1990’s, Ford sold large numbers of vehicles, in a booming American economy with soaring stock markets and low fuel prices. With the turn of the century just around the corner, business was only getting better but for how long? Today Ford Motors is known worldwide, producing automobiles in North America, Europe, Asia Pacific, South America as well as Africa and the Middle East. With its production of cars, crossovers, SUV’s, trucks, hybrids, and Electric Vehicle’s (EV), Ford remains one of the largest car manufacturers. In addition to the automobiles specific to Ford, the company also has its fingers in car companies such as Lincoln, Mercury, Jaguar, Aston Martin, Volvo, Land Rover, and Mazda. Weather it’s a racecar on the track or an EV on the streets, Ford is involved in almost every aspect of the automobile industry.
National Economic Indicators
Real GDP Aside from Ford Motors becoming a more future smart and innovative car company, there is very important economic data that can be looked at to potentially judge the future life of Ford as the leader in electric transportation. Real GDP can be defined as the value of final good and services produced in a given year when valued at the prices of a reference year.
By comparing the value of production in the two years at the same prices, the change in production is revealed.
Following the 2001-2011 National Annual RGDP chart above; there has been dramatic change in the national profits of RGDP through the years of 2001 to 2011. From the time period of 2001 to 2007 the U.S. economy was in a good place and was for the most part a balanced economy with a few dips and raises while staying within 3-6% change. After 2007 and going into 2008 the economy started its downfall into deep recession and the data reflects this economic turmoil. Currently the U.S. economy is slowly rebuilding itself from its near crash.
Employment Rate
Employment rate can be defined as the number of persons who have jobs, expressed as a percentage of the total workforce. The employment rate is not as widely used as the unemployment rate but it is still an important indicator of the economy and industries within.
After reviewing the 2002-2011 National Employment Rate chart above it is very clear that with the current U.S. economic state, employment is still at a strong percentage rate and is still increasing. In the early to mid 2000’s the U.S. employment rate seemed to stay consistent rate, and despite economic recession hitting in 2008 the employment began its assent. With employment nearly doubling from 4.5% to 8.1% in the two short years from 2007 to 2009, the rate was at an unseen high. In our modern economy there are many factors that can account for the rise in the employment rate, however, the rise can mostly be attributed to recession recovery of the economy. In the chart above, it appears that the employment rate begins to rise in the final quarter of 2007. It is very surprising to see that regardless of recession, the employment percentages still manage to climb through hard economic times. It is clear that the employment rate doesn’t rise instantly, but at a slow lagged rate that took many years to reach its peak. This lagged effect is most likely due to the fact that not all companies are equally affected by recession and took longer to feel the full force of the downward spiraling economy.
Inflation Rate Measured by The Consumer Price Index
Inflation is the percentage increase or the persistently rising price level of goods and services usually annually. Consumer price index (CPI) tells you about the value of the money in your pocket and is a measure of the average of the process paid by urban consumers for a fixed basket of consumer goods and services. Using the CPI is the most common and efficient way to measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today’s prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. CPI is also the best way to measure and translate retail sales and hourly or weekly earnings into real or inflation-free dollars.
Based off the information in the 2001-2011 Annual National Inflation Rate chart it is clear that over this time period the inflation of the U.S. has multiple dips and rises. In the early 2000’s the inflation rate seemed to be decreasing which was benefitting the U.S. economy. This decrease didn’t last for long because by 2004 the national inflation was nearly back to what it was in 2001 and was still increasing. National inflation dipped and rose one more time between 2005 and 2008 before finally dramatically dropping in 2009. This dip caused by the housing crisis wouldn’t last for long because in 2010 the inflation shot right back up and has continued to increase in 2011.
Firm Level Economic Indicators
Revenue of Ford Motors Revenue is defined as the income generated from sale of goods or services, or any other use of capital or assets, associated with the main operation of an organization before any costs or expenses are deducted.
Revenue is shown usually as the top item in an income statement from which all charges, costs, and expenses are subtracted to arrive at net income.
The chart above shows the annual revenues of the entire Ford Motor Company from 2000 to 2011. At the turn of the century it is clear that the Ford Motor Company is a very solid and stable company that appears to have an almost flat, consistent revenues line. As the years on the chart continue the chart begins to show dips and rises in revenues. In the year 2006, the Ford Motor Company drops in its revenues due to an unstable economy, but quickly recovers and rises back to where it was by 2007. Suddenly in 2008 a huge economic recession hit the economy and caused Ford’s revenue to plummet. Due to the current economic situation, Ford is still struggling to reestablish itself at the same revenue levels that it once had. Over time as the economy recovers, the Ford Motor Company will regain the revenues it used to …show more content…
yield.
Fuel Prices Fuel is simply a liquid or liquefiable petroleum product that is used to generate heat or power. Also known as black gold, crude oil is one substance that our society cannot live without. Almost everything that we interact with has petroleum in it. This being said, oil and fuel is not something that we can easily say good-bye too, especially in the automotive world.
In the chart above, the prices fuel at the pump have been displayed over an eight-year period from 2004 to 2012. The fluctuations in fuel prices are and always will be a key factor in the sales and income of the auto industry. As fuel prices increase it is logical that the auto industry will make less sales and bring in less income, but if fuel prices are low then the auto industry goes the other way and will bring in more sales and revenue. In order to avoid this dilemma all together the auto industry is beginning to produce more hybrid and electric cars. In the chart the data begins with the year of 2004, showing that fuel prices were around $2.00 per gallon. As the economy started to show that it was shaky and heading down hill the fuel prices soared to around $3.00 per gallon in 2005. Although this was a huge outrage to the public, the prices only fell slightly in the following two years and everyone was forced to deal with the expense. Just as the economy hit its huge recession period, prices soared even higher to around $4.00 per gallon from 2007to 2009. As the economy began to recover, prices again dropped down to around $2.50 and then slowly began its accent again. Since the economy is still in a very tough place the fuel prices have again risen to just under $4.00 per gallon and seem to be leveling out at this price point. With the wars overseas and the scarcity of fuel, it seems that prices will not go down anytime soon.
Employment Rate of The Auto Industry
The employment rate is the percentage of the people in the labor force who are employed. In this case, the chart below shows the percent change in the Industry level of employment for total manufacturing and auto parts manufacturing from 2001 to 2010. Employment rate can be defined as the number of persons who have jobs, expressed as a percentage of the total workforce. The employment rate is not as widely used as the unemployment rate but it is still an important indicator of the economy and industries within.
In the chart above there are two sets of data that show the trend at the industry level of workers employed in auto parts manufacturing in blue, and the industry level of overall auto manufacturing employment in red. At the turn of the century the employment rate of both parts and overall auto manufacturing were at a low -5% and in the years 2001 and 2002 there appears to be virtually no change in the employment rate. At the end of 2002 and going into 2003 things began to change for the better and the employment rates in both categories picks up. After reviewing the chart it can be seen that at the industry level, the employment rate seemed to brake even at around 0% from 2004 to 2006. Sadly the same cannot be said for the company level. Although there was an increase in employment in 2003, the company level slowly began to decline again after that year. Both employment rates show a close following with each other and remain almost the same until recession hit at the end of 2007. When the economic disaster occurred the employment rates of both the industry and company level went into free fall. In 2008, although both employment rates were plummeting they still managed to closely follow each other. It wasn’t until 2009 that a huge difference between the two could be seen. While the company level employment rate didn’t bottom out until it hit -23%, the industry level employment rate bottomed out at around -11%. 2009 was the year that the recession took the biggest toll on both the industry and company level employment rates, but in 2010 they both seemed to recover and show that they are both in positive employment again. Even though the employment rates show a positive growth in 2010, both the industry and company level have a long way to go in order to recover all of the lost employment from 2007 to 2009.
Comparison and Contrasting of National Economic Indicators vs. Firm Level
Economic Indicators
National RGDP vs. Auto Industry Revenues In comparing and contrasting these two economic indicators, they generally show a similar trend due to the fact that they are based off of the same series of data except one is the national series and one is the company series.
However, these two charts do differ in a few ways. One is that at the national level, profits and RGDP is displayed in a percentage of growth while at the company level the annual profits are displayed as number for the company revenue. Although one is based off of percentages and the other only revenue numbers, they still resemble as similar trend. In these two charts, the national annual real GDP was measured over a ten-year trend from 2001 to 2011, while the annual revenues of Ford Motors was measured over an eleven-year period from 2000 to 2011. After reviewing both charts it is clear that the national annual real GDP fluctuates much more than the annual revenues of the Ford Motor Company. While at the national level there were rises and dips in the early to mid 2000’s, the Ford Motor Company shows that their annual revenue stay almost the same with a low dipping yet very stable
curve. As recession hit the U.S. economy it is easy to see that it greatly decreased the national annual real GDP and even sent it into negative percentages for one-year period. After comparing this to the annual revenue of the Ford Motor Company it is also easy to see that the recession slowly crept up in 2006 and then took full effect in at the end of 2007. The Ford Motor Company revenue plummeted and seems to still be affecting the company to this day as the company, the industry, and the nation try to recover from such brutal economic troubles. National Employment vs. Auto Industry Manufacturing Employment
The employment rate is the percentage of the people in the labor force who are employed. In this chart, the national, industry, and company levels of employment are shown to illustrate the difference and similarities of the employment rates.
Although these three indicators share the employment subject matter, they are very different in the data that is shown between the national level, industry level, and company level. While all three-employment indicators show employment percentages, they also compare time periods. After looking at the chart, it can be seen that the industry and company levels do not show as many years of data as the national level, however, the time period that is shown gives a clear understanding to the past employment trends. This employment rate chart organizes the employment rate data in a very clean and organized manor that is easily understood. It can be seen that in the early years of the 2000’s all three indicators show almost a straight-line curve that has virtually no movement between the years of 2000 and 2001. After 2002 came around the dips and rises of these indicators began to get interesting. Following 2002 and going into 2003 there was a slight rise in the industry and company employment rate, but almost no movement at the national level. From 2003 to 2005 the employment rate of the industry rose to almost break even at around 0% and the company employment rate followed closely just below the 0%. At that point there was nothing to worry about with the employment rates of the economy. Despite the near break even rates at the time, as 2006 and 2007 rolled around the economy went into deep recession and the employment rates of both the auto industry and the company level nose dived. With no end in sight, the employment rates finally reached their bottom with a -24% at the company level. Although the company and industry level appeared to be greatly affected by the recession at the end of 2007, both indicators quickly recovered and show large re growth along with the nation level of the employment rate.
Oil and Fuel Prices Contribute to National Inflation When talking about the fuel industry, national inflation can immediately be brought into the conversation. Due to our world’s dependent need for fuel, every price increase can be attributed to the price for a gallon of gas. As the value of fuel increases the cost to produce products increases. If the cost of production increases then the retail prices are also going to increase, and regardless of product production, as the fuel prices increase so will the cost of shipping goods and services. After thinking about this it is clear to see that fuel prices are directly related to the rate of inflation at a national level. When looking at the graph representing the annual national inflation rate and fuel prices it is clearly shown that data differs between the charts. While both charts show data that is representative of the national level they are still two very different indicators of the U.S. economy. You must take into account that the national inflation trend is shown over a time period of 10 years while the oil and fuel prices show only an eight-year trend. After looking at and comparing the corresponding years of data available it is easy to see that both charts follow a similar pattern in fluctuation even though they are two completely different economic indicators. The charts show that both indicators are continuing to rise but hopefully as the economy slowly recovers, both indicators will come back down to a more workable level for society.
Keynesian vs. Classical
In the history of economics there have been two major theories that almost all economists abide by. These theories are the classical growth theory and the Keynesian cycle theory. The Classical macroeconomist can be described as a macroeconomist who believes that the economy is self-regulating and that it is always at full employment. Someone that is a classical macroeconomist is also someone that stands behind the classical growth theory. This theory is the view that the growth of real GDP per person is temporary and that when it rises above the substance level, a population explosion eventually brings it back to the subsistence level. The Keynesian macroeconomist can be described as a macroeconomist who believes that left alone, the economy would rarely operate at full employment and that to achieve full employment, active help from fiscal policy and monetary policy required. Someone that is a Keynesian macroeconomist is also someone that stands behind the Keynesian cycle theory. This theory is the view that fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In our day in age, economics have been dominated by the classical theory based on notions of rational consumers making rational choices in a simple supply and demand world of finite resources, with prices constrained by decreasing returns; all driving the economy to an optimal equilibrium point. The current economic system set in place is pretty good at regulating and controlling its resource income and resource surplus with minimal outside control needed. In this system the economy works at an equilibrium that moves from point to point but can be affected by extreme circumstances such as peoples behavior, banks, financial institutions, stock market traders and governments.
With there being so many factors that can affect the economy there are major flaws with the current economy following the classical theory of economics. Many corporate giants have been bailed out and some voices have been suggesting that more regulations and government intervention should take place in order to set more rules on the whole system. If more regulation were to be set in place the economic system would be migrating back to the Keynesian approach of economics.
All being considered, the current economy of the U.S. is a mix between both the classical and Keynesian economic theories. To some extent the economy is self-regulating as it recovers from recession, but due to the current recession and bailouts of large corporate companies there is a lot of outside regulation being placed on how the economy is run.
Impact on Macroeconomic Environment Macroeconomic environment has been effected by the fuel prices that have increased and made shipping and production much more expensive. This has contributed to the national inflation because prices on all goods and services are now more expensive. This also has affects on the employment rate because due to the increasing prices, there is now less demand for goods and services. When the demand for goods and services go down employers produce less and therefore create a higher unemployment rate.
Analysis of Relationships Inflation is the percentage increase or the persistently rising price level of goods and services usually annually. Consumer price index (CPI) tells you about the value of the money in your pocket and is a measure of the average of the process paid by urban consumers for a fixed basket of consumer goods and services. The unemployment rate is an indicator of the extent to which people who want jobs can’t find them and is the percentage of the people in the labor force who are unemployed. The business cycle is a periodic but irregular up and down movement of total production and other measures of economic activity. The business cycle isn’t a regular predictable cycle but every cycle has two phases being expansion and recession. An expansion is a period during which real GDP increases, and a recession is a period during which real GDP decreases. These three terms have an interrelated relationship among the industry and company levels. Since a business cycle has two phases, expansion and recession, the economy is in either in one or the other at all times. Both inflation and unemployment are two indicators that can be affected in both phases of the business cycle. In the expansion of an economy the inflation and unemployment rate would be low as the economy is growing and expanding. The opposite would occur in the recession of an economy. Since the economy would be facing hard times there would be an increase in both the inflation and unemployment rates.
Impact of Fiscal and Monetary Policies
Fiscal and Monetary policies are one of the three key factors that effect the change of aggregate demand. Within any economy in our world, there will always be changes in aggregate demand. Changes in aggregate demand can be described as a change in any factor that influences buying plans other than the price level brings a change in the aggregate demand. As one of the key factors to change in the aggregate demand, fiscal policy can be described as the government’s attempt to influence the economy by setting and charging taxes, making transfer payments, and purchasing goods and services. The other part to this key factor to change in the aggregate demand is monetary policy and can be described as the Federal Reserve’s (Fed’s) attempt to influence the economy by changing interest rates and the quantity of money. Some past and current examples of fiscal and monetary policies used in the auto industry are low interest rate policies, which allow car dealers to offer 0% financing. These low interest rate policies also allow dealers and manufacturers to borrow more money to expand their dealer and manufacturing presence and placement. There are also policies for lower taxes on corporations, which would allow dealers and manufacturers to make more profit. Car sellers have the power to raise and lower prices, which increases the money supply so people have more money to spend.
Works Cited
Edmunds.com. (2012, May 21). Ford Models. Retrieved May 21, 2012, from Edmunds.com: http://www.edmunds.com/ford/
Ford Motors. (2002-2011). Financial Reports and SEC Filings. Retrieved May 1, 2012, from Ford: http://corporate.ford.com/our-company/investors/reports-financial-information/annual-reports
GasBuddy.com. (2012). 96 Month Average Retail Price Chart. Retrieved May 1, 2012, from GasBuddy.com: http://www.gasbuddy.com/gb_retail_price_chart.aspx?time=24
Inflation Data. (2012, April 30). Current Consumer Price Index. Retrieved April 30, 2012, from Inflation Data: http://inflationdata.com/inflation/Consumer_Price_Index/CurrentCPI.asp
InvestorWords.com. (2012, May 1). Sales. Retrieved May 1, 2012, from InvestorWords.com: http://www.investorwords.com/4365/sales.html
Mbela, L. A. (2009, May 3). Are we moving back to the Keynesian economic approach? The need of a new Model? Retrieved May 21, 2012, from Lambertmbela 's Blog: http://lambertmbela.wordpress.com/2009/05/03/are-we-moving-back-to-the-keynesian%E2%80%99s-approach-of-the-economics-the-need-of-a-new-model/
NPR. (2006, January 23). A Timeline of Ford Motor Company. Retrieved May 21, 2012, from NPR Find A Station: http://www.npr.org/templates/story/story.php?storyId=5168769
Parkin, M. (2012). Parkin Macroeconomics (thenth Edition ed.). (D. Battista, Ed.) Boston: Pearson.
U.S. Bureau of Labor Statistics. (2012, January 1). The Attack on the American Auto Parts Industry. Retrieved May 2, 2012, from U.S. Bureau of Labor Statistics: http://americanmanufacturing.org/files/Auto%20Parts%20White%20Paper%20Final.pdf
U.S. Department of Commerce Bereau of Economic. (2012, April 30). Gross Demestic Product (GDP). Retrieved April 30, 2012, from Bureau of Economic Analysis: bea.gov
United States Department of Labor Bureau of Labor Statistics. (2012, April 30). BLS Information. Retrieved April 30, 2012, from Bureau of Labor Statistics: BLS.gov
United States Department of Labor Bureau of Labor Statistics. (2012, May 1). Databases, Tables & Calculators by Subject. Retrieved May 1, 2012, from United States Department of Labor Bureau of Labor Statistics: http://data.bls.gov/timeseries/LNS14000000
United States Department of Labor. (2000-2011, April All). Employment Situation Archived News Releases. Retrieved May 22, 2012, from Bureau of Labor Statistics: http://www.bls.gov/schedule/archives/empsit_nr.htm#2000
Wikipedia. (2012, May 22). Ford Motor Company. Retrieved May 22, 2012, from Wikipedia The Free Encyclopedia: http://en.wikipedia.org/wiki/Ford_Motor_Company
Yahoo Answers. (2009, May 22). Monetary and fiscal policies that have affected the automotive industry? Retrieved May 22, 2012, from Yahoo Answers: http://answers.yahoo.com/question/index?qid=20090423075146AA77aVg
Introduction
History Ford Motor Company did not start out with its current name nor did it start with its current reputation or leadership standing in the automotive industry. A man named Henry Ford on November 3, 1901 started the Ford Motor Company. In the beginning, the car company went through multiple name changes within a short time period and eventually landed on the all time name of Ford Motor Company. With the help of 11 investors bringing together only $28,000, Ford Motor Company launched in 1903. In the early years, the company was able to produce just a few cars a day in its Detroit Michigan factory. Teams of a few men assembled each car with parts that were contracted from other companies. Within 10 years of start …show more content…
up, Ford Motor Company would be the world leader in the development and refinement of the assembly line as well as bringing parts production away from contracts and into its own factories. Although Henry Ford was 40 years old when he founded the Ford Motor Company, his hard work paid off and would go on to become one of the world’s largest and most profitable companies that would also weather its way through the great depression.
Overview Ford Motor Company is known as one of the largest family-controlled companies in the world, and has been in continuous family control for over 100 years. Throughout the 1990’s, Ford sold large numbers of vehicles, in a booming American economy with soaring stock markets and low fuel prices. With the turn of the century just around the corner, business was only getting better but for how long? Today Ford Motors is known worldwide, producing automobiles in North America, Europe, Asia Pacific, South America as well as Africa and the Middle East. With its production of cars, crossovers, SUV’s, trucks, hybrids, and Electric Vehicle’s (EV), Ford remains one of the largest car manufacturers. In addition to the automobiles specific to Ford, the company also has its fingers in car companies such as Lincoln, Mercury, Jaguar, Aston Martin, Volvo, Land Rover, and Mazda. Weather it’s a racecar on the track or an EV on the streets, Ford is involved in almost every aspect of the automobile industry.
National Economic Indicators
Real GDP Aside from Ford Motors becoming a more future smart and innovative car company, there is very important economic data that can be looked at to potentially judge the future life of Ford as the leader in electric transportation. Real GDP can be defined as the value of final good and services produced in a given year when valued at the prices of a reference year.
By comparing the value of production in the two years at the same prices, the change in production is revealed.
Following the 2001-2011 National Annual RGDP chart above; there has been dramatic change in the national profits of RGDP through the years of 2001 to 2011. From the time period of 2001 to 2007 the U.S. economy was in a good place and was for the most part a balanced economy with a few dips and raises while staying within 3-6% change. After 2007 and going into 2008 the economy started its downfall into deep recession and the data reflects this economic turmoil. Currently the U.S. economy is slowly rebuilding itself from its near crash.
Employment Rate
Employment rate can be defined as the number of persons who have jobs, expressed as a percentage of the total workforce. The employment rate is not as widely used as the unemployment rate but it is still an important indicator of the economy and industries within.
After reviewing the 2002-2011 National Employment Rate chart above it is very clear that with the current U.S. economic state, employment is still at a strong percentage rate and is still increasing. In the early to mid 2000’s the U.S. employment rate seemed to stay consistent rate, and despite economic recession hitting in 2008 the employment began its assent. With employment nearly doubling from 4.5% to 8.1% in the two short years from 2007 to 2009, the rate was at an unseen high. In our modern economy there are many factors that can account for the rise in the employment rate, however, the rise can mostly be attributed to recession recovery of the economy. In the chart above, it appears that the employment rate begins to rise in the final quarter of 2007. It is very surprising to see that regardless of recession, the employment percentages still manage to climb through hard economic times. It is clear that the employment rate doesn’t rise instantly, but at a slow lagged rate that took many years to reach its peak. This lagged effect is most likely due to the fact that not all companies are equally affected by recession and took longer to feel the full force of the downward spiraling economy.
Inflation Rate Measured by The Consumer Price Index
Inflation is the percentage increase or the persistently rising price level of goods and services usually annually. Consumer price index (CPI) tells you about the value of the money in your pocket and is a measure of the average of the process paid by urban consumers for a fixed basket of consumer goods and services. Using the CPI is the most common and efficient way to measure for adjusting payments to consumers when the intent is to allow consumers to purchase, at today’s prices, a market basket of goods and services equivalent to one that they could purchase in an earlier period. CPI is also the best way to measure and translate retail sales and hourly or weekly earnings into real or inflation-free dollars.
Based off the information in the 2001-2011 Annual National Inflation Rate chart it is clear that over this time period the inflation of the U.S. has multiple dips and rises. In the early 2000’s the inflation rate seemed to be decreasing which was benefitting the U.S. economy. This decrease didn’t last for long because by 2004 the national inflation was nearly back to what it was in 2001 and was still increasing. National inflation dipped and rose one more time between 2005 and 2008 before finally dramatically dropping in 2009. This dip caused by the housing crisis wouldn’t last for long because in 2010 the inflation shot right back up and has continued to increase in 2011.
Firm Level Economic Indicators
Revenue of Ford Motors Revenue is defined as the income generated from sale of goods or services, or any other use of capital or assets, associated with the main operation of an organization before any costs or expenses are deducted.
Revenue is shown usually as the top item in an income statement from which all charges, costs, and expenses are subtracted to arrive at net income.
The chart above shows the annual revenues of the entire Ford Motor Company from 2000 to 2011. At the turn of the century it is clear that the Ford Motor Company is a very solid and stable company that appears to have an almost flat, consistent revenues line. As the years on the chart continue the chart begins to show dips and rises in revenues. In the year 2006, the Ford Motor Company drops in its revenues due to an unstable economy, but quickly recovers and rises back to where it was by 2007. Suddenly in 2008 a huge economic recession hit the economy and caused Ford’s revenue to plummet. Due to the current economic situation, Ford is still struggling to reestablish itself at the same revenue levels that it once had. Over time as the economy recovers, the Ford Motor Company will regain the revenues it used to …show more content…
yield.
Fuel Prices Fuel is simply a liquid or liquefiable petroleum product that is used to generate heat or power. Also known as black gold, crude oil is one substance that our society cannot live without. Almost everything that we interact with has petroleum in it. This being said, oil and fuel is not something that we can easily say good-bye too, especially in the automotive world.
In the chart above, the prices fuel at the pump have been displayed over an eight-year period from 2004 to 2012. The fluctuations in fuel prices are and always will be a key factor in the sales and income of the auto industry. As fuel prices increase it is logical that the auto industry will make less sales and bring in less income, but if fuel prices are low then the auto industry goes the other way and will bring in more sales and revenue. In order to avoid this dilemma all together the auto industry is beginning to produce more hybrid and electric cars. In the chart the data begins with the year of 2004, showing that fuel prices were around $2.00 per gallon. As the economy started to show that it was shaky and heading down hill the fuel prices soared to around $3.00 per gallon in 2005. Although this was a huge outrage to the public, the prices only fell slightly in the following two years and everyone was forced to deal with the expense. Just as the economy hit its huge recession period, prices soared even higher to around $4.00 per gallon from 2007to 2009. As the economy began to recover, prices again dropped down to around $2.50 and then slowly began its accent again. Since the economy is still in a very tough place the fuel prices have again risen to just under $4.00 per gallon and seem to be leveling out at this price point. With the wars overseas and the scarcity of fuel, it seems that prices will not go down anytime soon.
Employment Rate of The Auto Industry
The employment rate is the percentage of the people in the labor force who are employed. In this case, the chart below shows the percent change in the Industry level of employment for total manufacturing and auto parts manufacturing from 2001 to 2010. Employment rate can be defined as the number of persons who have jobs, expressed as a percentage of the total workforce. The employment rate is not as widely used as the unemployment rate but it is still an important indicator of the economy and industries within.
In the chart above there are two sets of data that show the trend at the industry level of workers employed in auto parts manufacturing in blue, and the industry level of overall auto manufacturing employment in red. At the turn of the century the employment rate of both parts and overall auto manufacturing were at a low -5% and in the years 2001 and 2002 there appears to be virtually no change in the employment rate. At the end of 2002 and going into 2003 things began to change for the better and the employment rates in both categories picks up. After reviewing the chart it can be seen that at the industry level, the employment rate seemed to brake even at around 0% from 2004 to 2006. Sadly the same cannot be said for the company level. Although there was an increase in employment in 2003, the company level slowly began to decline again after that year. Both employment rates show a close following with each other and remain almost the same until recession hit at the end of 2007. When the economic disaster occurred the employment rates of both the industry and company level went into free fall. In 2008, although both employment rates were plummeting they still managed to closely follow each other. It wasn’t until 2009 that a huge difference between the two could be seen. While the company level employment rate didn’t bottom out until it hit -23%, the industry level employment rate bottomed out at around -11%. 2009 was the year that the recession took the biggest toll on both the industry and company level employment rates, but in 2010 they both seemed to recover and show that they are both in positive employment again. Even though the employment rates show a positive growth in 2010, both the industry and company level have a long way to go in order to recover all of the lost employment from 2007 to 2009.
Comparison and Contrasting of National Economic Indicators vs. Firm Level
Economic Indicators
National RGDP vs. Auto Industry Revenues In comparing and contrasting these two economic indicators, they generally show a similar trend due to the fact that they are based off of the same series of data except one is the national series and one is the company series.
However, these two charts do differ in a few ways. One is that at the national level, profits and RGDP is displayed in a percentage of growth while at the company level the annual profits are displayed as number for the company revenue. Although one is based off of percentages and the other only revenue numbers, they still resemble as similar trend. In these two charts, the national annual real GDP was measured over a ten-year trend from 2001 to 2011, while the annual revenues of Ford Motors was measured over an eleven-year period from 2000 to 2011. After reviewing both charts it is clear that the national annual real GDP fluctuates much more than the annual revenues of the Ford Motor Company. While at the national level there were rises and dips in the early to mid 2000’s, the Ford Motor Company shows that their annual revenue stay almost the same with a low dipping yet very stable
curve. As recession hit the U.S. economy it is easy to see that it greatly decreased the national annual real GDP and even sent it into negative percentages for one-year period. After comparing this to the annual revenue of the Ford Motor Company it is also easy to see that the recession slowly crept up in 2006 and then took full effect in at the end of 2007. The Ford Motor Company revenue plummeted and seems to still be affecting the company to this day as the company, the industry, and the nation try to recover from such brutal economic troubles. National Employment vs. Auto Industry Manufacturing Employment
The employment rate is the percentage of the people in the labor force who are employed. In this chart, the national, industry, and company levels of employment are shown to illustrate the difference and similarities of the employment rates.
Although these three indicators share the employment subject matter, they are very different in the data that is shown between the national level, industry level, and company level. While all three-employment indicators show employment percentages, they also compare time periods. After looking at the chart, it can be seen that the industry and company levels do not show as many years of data as the national level, however, the time period that is shown gives a clear understanding to the past employment trends. This employment rate chart organizes the employment rate data in a very clean and organized manor that is easily understood. It can be seen that in the early years of the 2000’s all three indicators show almost a straight-line curve that has virtually no movement between the years of 2000 and 2001. After 2002 came around the dips and rises of these indicators began to get interesting. Following 2002 and going into 2003 there was a slight rise in the industry and company employment rate, but almost no movement at the national level. From 2003 to 2005 the employment rate of the industry rose to almost break even at around 0% and the company employment rate followed closely just below the 0%. At that point there was nothing to worry about with the employment rates of the economy. Despite the near break even rates at the time, as 2006 and 2007 rolled around the economy went into deep recession and the employment rates of both the auto industry and the company level nose dived. With no end in sight, the employment rates finally reached their bottom with a -24% at the company level. Although the company and industry level appeared to be greatly affected by the recession at the end of 2007, both indicators quickly recovered and show large re growth along with the nation level of the employment rate.
Oil and Fuel Prices Contribute to National Inflation When talking about the fuel industry, national inflation can immediately be brought into the conversation. Due to our world’s dependent need for fuel, every price increase can be attributed to the price for a gallon of gas. As the value of fuel increases the cost to produce products increases. If the cost of production increases then the retail prices are also going to increase, and regardless of product production, as the fuel prices increase so will the cost of shipping goods and services. After thinking about this it is clear to see that fuel prices are directly related to the rate of inflation at a national level. When looking at the graph representing the annual national inflation rate and fuel prices it is clearly shown that data differs between the charts. While both charts show data that is representative of the national level they are still two very different indicators of the U.S. economy. You must take into account that the national inflation trend is shown over a time period of 10 years while the oil and fuel prices show only an eight-year trend. After looking at and comparing the corresponding years of data available it is easy to see that both charts follow a similar pattern in fluctuation even though they are two completely different economic indicators. The charts show that both indicators are continuing to rise but hopefully as the economy slowly recovers, both indicators will come back down to a more workable level for society.
Keynesian vs. Classical
In the history of economics there have been two major theories that almost all economists abide by. These theories are the classical growth theory and the Keynesian cycle theory. The Classical macroeconomist can be described as a macroeconomist who believes that the economy is self-regulating and that it is always at full employment. Someone that is a classical macroeconomist is also someone that stands behind the classical growth theory. This theory is the view that the growth of real GDP per person is temporary and that when it rises above the substance level, a population explosion eventually brings it back to the subsistence level. The Keynesian macroeconomist can be described as a macroeconomist who believes that left alone, the economy would rarely operate at full employment and that to achieve full employment, active help from fiscal policy and monetary policy required. Someone that is a Keynesian macroeconomist is also someone that stands behind the Keynesian cycle theory. This theory is the view that fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In our day in age, economics have been dominated by the classical theory based on notions of rational consumers making rational choices in a simple supply and demand world of finite resources, with prices constrained by decreasing returns; all driving the economy to an optimal equilibrium point. The current economic system set in place is pretty good at regulating and controlling its resource income and resource surplus with minimal outside control needed. In this system the economy works at an equilibrium that moves from point to point but can be affected by extreme circumstances such as peoples behavior, banks, financial institutions, stock market traders and governments.
With there being so many factors that can affect the economy there are major flaws with the current economy following the classical theory of economics. Many corporate giants have been bailed out and some voices have been suggesting that more regulations and government intervention should take place in order to set more rules on the whole system. If more regulation were to be set in place the economic system would be migrating back to the Keynesian approach of economics.
All being considered, the current economy of the U.S. is a mix between both the classical and Keynesian economic theories. To some extent the economy is self-regulating as it recovers from recession, but due to the current recession and bailouts of large corporate companies there is a lot of outside regulation being placed on how the economy is run.
Impact on Macroeconomic Environment Macroeconomic environment has been effected by the fuel prices that have increased and made shipping and production much more expensive. This has contributed to the national inflation because prices on all goods and services are now more expensive. This also has affects on the employment rate because due to the increasing prices, there is now less demand for goods and services. When the demand for goods and services go down employers produce less and therefore create a higher unemployment rate.
Analysis of Relationships Inflation is the percentage increase or the persistently rising price level of goods and services usually annually. Consumer price index (CPI) tells you about the value of the money in your pocket and is a measure of the average of the process paid by urban consumers for a fixed basket of consumer goods and services. The unemployment rate is an indicator of the extent to which people who want jobs can’t find them and is the percentage of the people in the labor force who are unemployed. The business cycle is a periodic but irregular up and down movement of total production and other measures of economic activity. The business cycle isn’t a regular predictable cycle but every cycle has two phases being expansion and recession. An expansion is a period during which real GDP increases, and a recession is a period during which real GDP decreases. These three terms have an interrelated relationship among the industry and company levels. Since a business cycle has two phases, expansion and recession, the economy is in either in one or the other at all times. Both inflation and unemployment are two indicators that can be affected in both phases of the business cycle. In the expansion of an economy the inflation and unemployment rate would be low as the economy is growing and expanding. The opposite would occur in the recession of an economy. Since the economy would be facing hard times there would be an increase in both the inflation and unemployment rates.
Impact of Fiscal and Monetary Policies
Fiscal and Monetary policies are one of the three key factors that effect the change of aggregate demand. Within any economy in our world, there will always be changes in aggregate demand. Changes in aggregate demand can be described as a change in any factor that influences buying plans other than the price level brings a change in the aggregate demand. As one of the key factors to change in the aggregate demand, fiscal policy can be described as the government’s attempt to influence the economy by setting and charging taxes, making transfer payments, and purchasing goods and services. The other part to this key factor to change in the aggregate demand is monetary policy and can be described as the Federal Reserve’s (Fed’s) attempt to influence the economy by changing interest rates and the quantity of money. Some past and current examples of fiscal and monetary policies used in the auto industry are low interest rate policies, which allow car dealers to offer 0% financing. These low interest rate policies also allow dealers and manufacturers to borrow more money to expand their dealer and manufacturing presence and placement. There are also policies for lower taxes on corporations, which would allow dealers and manufacturers to make more profit. Car sellers have the power to raise and lower prices, which increases the money supply so people have more money to spend.
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